Saturday, 8 November 2014

Indian power sector looks at saving INR 6,000 crore in coal transportation

Economic Times reported that the power sector is heading for a INR 6,000 crore, saving in coal transportation cost and earnings of another INR 3,600 crore by additional generation as the government plans to tweak fuel supply arrangements to ensure that coal from each mine or port is shipped to closest plant.

Currently, a lot of imported coal travels deep inside the country while some domestic output is transported to plants on the coast, which inflates the price of electricity.

Further, many power companies get fuel from a mine far away even if coal is producec much closer to the plant. The proposed changes would affect nearly half of India's tota power generation capacity.

In some cases two plants will simply swap the coal suppliers, while in other cases the supply adjustments would involve many plants.

Government sources said said that the government had appointed KPMG to assess the benefits of reorganising fuel tie-ups. The global consulting firm has estimated savings in the range of INR 4,500 crore to INR 6,000 crore in logistics as the distance between the supplying coal mine and the plant would come down by 27%.

It has also estimated that this would lead to additional generation from 3,500 MW of capacity with potential benefit of INR 3,500 crore.

The rejig of fuel supply pacts would come as a blessing for the power sector, which is reeling under acute fuel shortage and reluctance of main buyers, the state distribution companies, to buy power that it finds costly. The government has already issued an ordinance to auction coal blocks and has plans to ensure better fuel supply for gas-fired and coal-based plants by blending imported and locally produced fuel.

Government officials said that increase coal supply is on top of their agenda.

Mr Piyush Goyal, Power, Coal and Renewable Energy Minister, said that the fact that different companies supplying coal are subsidiaries of CIL, would help restructure the supply pacts, and this was a reason why the state-run giant was not being split.

The KPMG report, submitted to the power ministry, said that the exercise will also decongest the railway network as the average distance travelled by coal will come down to 429 kilometer per tonne from 589 kilometer per tonne and hedge coastal power projects against any interruptions in supply in future.

Power companies are incurring huge costs on importing coal and transporting it to plants in hinterlands, while projects on the coast get coal from far-off states. The consultancy has advised the power ministry to bilaterally swap coal supplies of 32 power projects of 45,000 MW capacity while multilateral swaps have been recommended for 95 power stations of 74,000 MW capacity.

Meanwhile, the proposal would require nod from power companies including private firms, states of Gujarat, Tamil Nadu, Maharashtra, Punjab, Haryana and Rajasthan and electricity regulators.